CLIFFS NATURAL RESOURCES INC.s1.q4cdn.com/345331386/files/doc_financials/...QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly

CLIFFS NATURAL RESOURCES INC.

FORM 10-Q(Quarterly Report)

Filed 07/28/11 for the Period Ending 06/30/11

Address 200 PUBLIC SQUARESTE. 3300CLEVELAND, OH 44114-2315

Telephone 216-694-5700CIK 0000764065

Symbol CLFSIC Code 1000 - Metal Mining

Industry Metal MiningSector Basic Materials

Fiscal Year 12/31

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Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2011

OR

� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-8944

CLIFFS NATURAL RESOURCES INC. (Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (216) 694-5700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES NO �

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES NO �

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer � Non-accelerated filer � Smaller reporting company �

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES � NO

The number of shares outstanding of the registrant’s Common Shares, par value $0.125 per share, was 146,016,897 as of July 25, 2011.

Ohio 34-1464672 (State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

200 Public Square, Cleveland, Ohio 44114-2315 (Address of Principal Executive Offices) (Zip Code)

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TABLE OF CONTENTS

Page No.

1 Definitions

PART I – FINANCIAL INFORMATION

2 Item 1 – Financial Statements

Statements of Unaudited Condensed Consolidated Operations Three and Six Months Ended June 30, 2011 and 2010

3

Statements of Unaudited Condensed Consolidated Financial Position June 30, 2011 and December 31, 2010

4

Statements of Unaudited Condensed Consolidated Cash Flows Six Months Ended June 30, 2011 and 2010

5 Notes to Unaudited Condensed Consolidated Financial Statements

39

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

67 Item 3 – Quantitative and Qualitative Disclosures About Market Risk

67 Item 4 – Controls and Procedures

PART II – OTHER INFORMATION AND SIGNATURES

67 Item 1 – Legal Proceedings

69 Item 1A – Risk Factors

70 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

71 Item 5 – Other Information

74 Item 6 – Exhibits

74 Signature

75 Exhibit Index

EX-31(a) – Section 302 Certification of Chief Executive Officer

EX-31(b) – Section 302 Certification of Chief Financial Officer

EX-32(a) – Section 906 Certification of Chief Executive Officer

EX-32(b) – Section 906 Certification of Chief Financial Officer

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Definitions The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.

1

Abbreviation or acronym Term Algoma Essar Steel Algoma Inc. Amapá Anglo Ferrous Amapá Mineração Ltda. and Anglo Ferrous Logística Amapá Ltda. ArcelorMittal USA ArcelorMittal USA Inc. ASC Accounting Standards Codification AusQuest AusQuest Limited Bloom Lake Bloom Lake Iron Ore Mine Limited Partnership C.F.R. Cost and Freight CLCC Cliffs Logan County Coal LLC Cockatoo Cockatoo Island Joint Venture Consolidated Thompson Consolidated Thompson Iron Mines Limited CSAP Cross State Air Pollution Rule Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act Empire Empire Iron Mining Partnership EPA United States Environmental Protection Agency Exchange Act Securities Exchange Act of 1934 FASB Financial Accounting Standards Board FMSH Act Federal Mine Safety and Health Act 1977 F.O.B. Free on board Freewest Freewest Resources Canada Inc. GAAP Accounting principles generally accepted in the United States Hibbing Hibbing Taconite Company IASB International Accounting Standards Board ICE Plan Amended and Restated Cliffs 2007 Incentive Equity Plan, As Amended IFRS International Financial Reporting Standards INR INR Energy, LLC Ispat Ispat Inland Steel Company LIBOR London Interbank Offered Rate LTVSMC LTV Steel Mining Company MMBtu Million British Thermal Units MPCA Minnesota Pollution Control Agency MRRT Minerals Resource Rent Tax MSHA Mine Safety and Health Administration Northshore Northshore Mining Company Oak Grove Oak Grove Resources, LLC OCI Other comprehensive income OPEB Other postretirement benefits Pinnacle Pinnacle Mining Company, LLC PM Particulate Matter PPACA Patient Protection and Affordable Care Act Reconciliation Act Health Care and Education Reconciliation Act renewaFUEL renewaFUEL, LLC Ring of Fire properties Black Thor, Black Label and Big Daddy chromite deposits SEC United States Securities and Exchange Commission Sonoma Sonoma Coal Project Spider Spider Resources Inc. Tilden Tilden Mining Company L.C. TSR Total Shareholder Return United Taconite United Taconite LLC U.S. United States of America Wabush Wabush Mines Joint Venture Weirton ArcelorMittal Weirton Inc. WISCO Wuhan Iron and Steel (Group) Corporation

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CLIFFS NATURAL RESOURCES INC. AND SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPER ATIONS

See notes to unaudited condensed consolidated financial statements.

2

(In Millions, Except Per Share Amounts)

Three Months Ended

June 30, Six Months Ended

June 30, 2011 2010 2011 2010 REVENUES FROM PRODUCT SALES AND SERVICES

Product $ 1,705.0 $ 1,116.2 $ 2,838.0 $ 1,787.7 Freight and venture partners ’ cost reimbursements 100.8 68.1 151.0 124.3

1,805.8 1,184.3 2,989.0 1,912.0 COST OF GOODS SOLD AND OPERATING EXPENSES (1,075.0) (769.6) (1,659.5) (1,347.3)

SALES MARGIN 730.8 414.7 1,329.5 564.7 OTHER OPERATING INCOME (EXPENSE)

Selling, general and administrative expenses (69.5) (42.5) (115.3) (86.9) Consolidated Thompson acquisition costs (18.0) - (22.9) - Exploration costs (18.2) (7.7) (28.8) (9.3) Miscellaneous - net (8.2) 1.3 (4.4) 10.7

(113.9) (48.9) (171.4) (85.5)

OPERATING INCOME 616.9 365.8 1,158.1 479.2 OTHER INCOME (EXPENSE)

Gain on acquisition of controlling interests - - - 38.6 Changes in fair value of foreign currency contracts , net 50.4 (10.0) 106.7 (7.7) Interest income 2.4 2.7 4.9 5.1 Interest expense (81.0) (13.3) (119.2) (23.5) Other non -operating income 0.5 6.5 1.0 7.2

(27.7) (14.1) (6.6) 19.7

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX ES AND EQUITY INCOME (LOSS) FROM VENTURES 589.2 351.7 1,151.5 498.9

INCOME TAX EXPENSE (151.9) (99.3) (293.9) (165.7) EQUITY INCOME (LOSS) FROM VENTURES (11.3) 8.2 (8.3) 4.8

NET INCOME 426.0 260.6 849.3 338.0 LESS: INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST 18.3 (0.1) 18.2 (0.1)

NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS $ 407.7 $ 260.7 $ 831.1 $ 338.1

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SH AREHOLDERS - BASIC $ 2.93 $ 1.93 $ 6.06 $ 2.50

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SH AREHOLDERS - DILUTED $ 2.92 $ 1.92 $ 6.02 $ 2.49

AVERAGE NUMBER OF SHARES (IN THOUSANDS) Basic 139,000 135,319 137,243 135,247 Diluted 139,783 136,134 137,987 136,041

CASH DIVIDENDS DECLARED PER SHARE $ 0.14 $ 0.14 $ 0.28 $ 0.2275

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CLIFFS NATURAL RESOURCES INC. AND SUBSIDIARIES STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED FINA NCIAL POSITION

See notes to unaudited condensed consolidated financial statements.

3

(In Millions)

June 30,

2011

December 31,

2010 ASSETS

CURRENT ASSETS Cash and cash equivalents $ 238.1 $ 1,566.7 Accounts receivable 317.2 352.3 Accounts receivable from associated companies 70.5 6.8 Inventories 605.3 269.2 Supplies and other inventories 156.9 148.1 Derivative assets 110.2 82.6 Deferred and refundable taxes 38.0 43.2 Other current assets 152.1 114.8

TOTAL CURRENT ASSETS 1,688.3 2,583.7 PROPERTY, PLANT AND EQUIPMENT, NET 9,802.4 3,979.2 OTHER ASSETS

Investments in ventures 509.4 514.8 Goodwill 1,227.3 196.5 Intangible assets, net 159.5 175.8 Deferred income taxes 54.2 140.3 Other non-current assets 230.6 187.9

TOTAL OTHER ASSETS 2,181.0 1,215.3

TOTAL ASSETS $ 13,671.7 $ 7,778.2

LIABILITIES CURRENT LIABILITIES

Accounts payable $ 306.9 $ 266.5 Accrued expenses 361.6 266.6 Deferred revenue 141.2 215.6 Taxes payable 140.3 142.3 Current portion of term loan 62.5 - Other current liabilities 178.5 137.7

TOTAL CURRENT LIABILITIES 1,191.0 1,028.7 POSTEMPLOYMENT BENEFIT LIABILITIES 490.9 528.0 LONG-TERM DEBT 3,898.8 1,713.1 BELOW-MARKET SALES CONTRACTS 145.1 164.4 ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS 207.5 184.9 DEFERRED INCOME TAXES 890.1 63.7 OTHER LIABILITIES 328.3 256.7

TOTAL LIABILITIES 7,151.7 3,939.5 COMMITMENTS AND CONTINGENCIES

EQUITY CLIFFS SHAREHOLDERS’ EQUITY

Common Shares - par value $0.125 per share Authorized - 400,000,000 shares (2010 - 224,000,000 shares); Issued - 149,195,469 shares (2010 - 138,845,469 shares); Outstanding - 146,010,183 shares (2010 - 135,456,999 shares) 18.6 17.3

Capital in excess of par value of shares 1,760.3 896.3 Retained Earnings 3,717.7 2,924.1 Cost of 3,185,286 common shares in treasury (2010 - 3,388,470 shares) (46.3) (37.7) Accumulated other comprehensive income 95.9 45.9

TOTAL CLIFFS SHAREHOLDERS’ EQUITY 5,546.2 3,845.9

NONCONTROLLING INTEREST 973.8 (7.2)

TOTAL EQUITY 6,520.0 3,838.7

TOTAL LIABILITIES AND EQUITY $ 13,671.7 $ 7,778.2

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CLIFFS NATURAL RESOURCES INC. AND SUBSIDIARIES STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

4

(In Millions)

Six Months Ended June 30,

2011 2010 CASH FLOW FROM OPERATIONS

OPERATING ACTIVITIES Net income $ 849.3 $ 338.0 Adjustments to reconcile net income to net cash provided (used) by operating activities:

Depreciation, depletion and amortization 185.2 155.1 Changes in deferred revenue (98.1) (16.7) Deferred income taxes 75.9 54.9 Equity (income) loss in ventures (net of tax) 8.3 (4.8) Derivatives and currency hedges (89.8) (107.2) Gain on acquisition of controlling interests - (38.6) Other 10.2 11.0 Changes in operating assets and liabilities:

Receivables and other assets 7.0 (132.4) Product inventories (196.8) (75.0) Payables and accrued expenses (26.2) 51.4

Net cash provided by operating activities 725.0 235.7 INVESTING ACTIVITIES

Acquisition of Consolidated Thompson, net of cash acquired (4,423.4) - Acquisition of controlling interests, net of cash acquired - (107.2) Purchase of property, plant and equipment (244.5) (63.0) Settlements in Canadian dollar foreign exchange contracts 93.1 - Cost of Canadian dollar foreign exchange option (22.3) - Investment in Consolidated Thompson senior secured notes (125.0) - Investments in ventures (1.3) (181.4) Other investing activities 2.6 (5.6)

Net cash used by investing activities (4,720.8) (357.2) FINANCING ACTIVITIES

Net proceeds from issuance of common shares 853.7 - Net proceeds from issuance of senior notes 998.1 395.1 Borrowings on term loan 1,250.0 - Borrowings on bridge credit facility 750.0 - Repayment of bridge credit facility (750.0) - Debt issuance costs (47.7) - Repayment of Consolidated Thompson convertible debentures (337.2) - Repayment of $200 million term loan - (200.0) Common stock dividends (38.0) (30.8) Other financing activities (19.5) (16.6)

Net cash provided by financing activities 2,659.4 147.7

EFFECT OF EXCHANGE RATE CHANGES ON CASH 7.8 (1.4)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,328.6) 24.8 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,566.7 502.7

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 238.1 $ 527.5

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CLIFFS NATURAL RESOURCES INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCO UNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and in the opinion of management, contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of results to be expected for the year ended December 31, 2011 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries, including the following subsidiaries:

Intercompany transactions and balances are eliminated upon consolidation.

On May 12, 2011, we acquired all of the outstanding common shares of Consolidated Thompson for C$17.25 per share in an all-cash transaction, including net debt. The unaudited condensed consolidated financial statements as of and for the period ended June 30, 2011 reflect our 100 percent interest in Consolidated Thompson since that date. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified on the Statements of Unaudited Condensed Consolidated Financial Position as of June 30, 2011 and December 31, 2010. Parentheses indicate a net liability.

5

Name Location Ownership Interest Operation Northshore Minnesota 100.0% Iron Ore United Taconite Minnesota 100.0% Iron Ore Wabush Labrador/Quebec, Canada 100.0% Iron Ore Bloom Lake Quebec, Canada 75.0% Iron Ore Tilden Michigan 85.0% Iron Ore Empire Michigan 79.0% Iron Ore Asia Pacific Iron Ore Western Australia 100.0% Iron Ore Pinnacle West Virginia 100.0% Coal Oak Grove Alabama 100.0% Coal CLCC West Virginia 100.0% Coal renewaFUEL Michigan 95.0% Biomass Freewest Ontario, Canada 100.0% Chromite Spider Ontario, Canada 100.0% Chromite

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During the second quarter of 2011, we recorded an impairment charge of $17.6 million related to the decline in the fair value of our 30 percent ownership interest in AusQuest that was determined to be other than temporary. We evaluated the severity of the decline in the fair value of the investment as compared to our historical carrying amount, considering the broader macroeconomic conditions and the status of current exploration prospects, and could not reasonably assert that the impairment period would be temporary. As of June 30, 2011, our investment in AusQuest had a fair value of $7.3 million based upon the closing market price of the 68.3 million shares held as of June 30, 2011. As we account for this investment as an equity method investment, we recorded the impairment charge as a component of Equity Income (Loss) from Ventures on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011.

Reportable Segments

As a result of the acquisition of Consolidated Thompson, we have revised the number of our operating and reportable segments as determined under ASC 280. Our Company’s primary operations are organized and managed according to product category and geographic location and now include: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and our Global Exploration Group. Our historical presentation of segment information consisted of three reportable segments: North American Iron Ore, North American Coal and Asia Pacific Iron Ore. Our restated presentation consists of four reportable segments: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal and Asia Pacific Iron Ore. The amounts disclosed in NOTE 2 – SEGMENT REPORTING reflects this restatement.

Significant Accounting Policies

A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2010, included in our Annual Report on Form 10-K filed with the SEC. Due to the completion of our acquisition of Consolidated Thompson, there have been several changes in our significant accounting policies and estimates from those disclosed therein. The significant accounting policies requiring updates have been included within the disclosures below.

Inventories

U.S. Iron Ore

U.S. Iron Ore product inventories are stated at the lower of cost or market. Cost of iron ore inventories is determined using the LIFO method. We maintain ownership of the inventories until title has transferred to the customer, usually when payment is made. Maintaining ownership of the iron ore products at ports on the lower Great Lakes reduces risk of non-payment by customers, as we retain title to the product until payment is received from the customer. We track the movement of the inventory and verify the quantities on hand.

6

(In Millions)

Investment Classification Interest

Percentage June 30,

2011

December 31,

2010

Amapá Investments in ventures 30 $ 476.7 $ 461.3 AusQuest Investments in ventures 30 7.3 24.1 Cockatoo Investments in ventures 50 6.1 10.5 Hibbing Other liabilities 23 (1.8) (5.8) Other Investments in ventures 19.3 18.9

$ 507.6 $ 509.0

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Eastern Canadian Iron Ore

Iron ore pellet inventories are stated at the lower of cost or market. Similar to U.S. Iron Ore product inventories, the cost is determined using the LIFO method. For the majority of these inventories, ownership is maintained until loading of the product at the port.

Iron ore concentrate inventories are stated at the lower of cost or market. The cost of iron ore concentrate inventories is determined using the weighted average cost. For the majority of the iron ore concentrate inventories, we maintain ownership of the inventories until title passes on the bill of lading date, which is the date of the shipment from the port.

Revenue Recognition and Cost of Goods Sold and Oper ating Expenses

U.S. Iron Ore

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified provisions of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our U.S. Iron Ore term supply agreements provide that title and risk of loss transfer to the customer when payment is received.

We recognize revenue based on the gross amount billed to a customer as we earn revenue from the sale of the goods or services. Revenue from product sales also includes reimbursement for freight charges paid on behalf of customers in Freight and Venture Partners’ Cost Reimbursements separate from product revenue .

Costs of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales and revenues of our mining operations. Operating expenses within this line item primarily represent the portion of the mining venture costs for which we do not own; that is, the costs attributable to the share of the mine’s production owned by the other joint venture partners. The mining ventures function as captive cost companies; they supply product only to their owners effectively on a cost basis. Accordingly, the noncontrolling interests’ revenue amounts are stated at cost of production and are offset in entirety by an equal amount included in cost of goods sold and operating expenses resulting in no sales margin reflected in noncontrolling interest participants. As we are responsible for product fulfillment, we retain the risks and rewards of a principal in the transaction and accordingly record revenue under these arrangements on a gross basis.

Under certain term supply agreements, we ship the product to ports on the lower Great Lakes or to the customer’s facilities prior to the transfer of title. Our rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize credit risk exposure. In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing for the year the product is consumed in the customer’s blast furnaces. We account for this provision as a derivative instrument at the time of sale and record this provision at fair value until the year the product is consumed and the amounts are settled as an adjustment to revenue.

Where we are joint venture participants in the ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as the pellets are produced. Revenue is recognized on the sale of services when the services are performed.

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Eastern Canadian Iron Ore

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified provisions of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our Eastern Canadian Iron Ore term supply agreements provide that title and risk of loss transfer to the customer upon loading of the product at the port.

Since the acquisition date of Consolidated Thompson, Product Revenues and Costs of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations reflects our 100 percent ownership interest in Consolidated Thompson. WISCO is a twenty-five percent equity holder in Bloom Lake, resulting in a noncontrolling interest adjustment for WISCO’s ownership percentage to Net income (loss) attributable to noncontrolling interest on the Statements of Unaudited Condensed Consolidated Operations. As WISCO is a twenty-five percent equity holder in Bloom Lake and also our customer, we recognized $88.7 million of related party revenues on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011, and $70.4 million of related party receivables on the Statements of Unaudited Condensed Consolidated Financial Position as of June 30, 2011.

Retrospective Adjustments

In accordance with the business combination guidance in ASC 805, we retrospectively recorded adjustments to the Wabush purchase price allocation that occurred during the second half of 2010 back to the date of acquisition that occurred during the first quarter of 2010. The adjustments were due to further refinements of the fair values of the assets acquired and liabilities assumed. Additionally, we continued to ensure our existing interest in Wabush was incorporating all of the book basis, including amounts recorded in Accumulated other comprehensive income . Due to these adjustments, the financial statements for the six months ended June 30, 2010 have been retrospectively adjusted for these changes, resulting in a decrease to Income From Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures of $22.0 million and a decrease to Net Income Attributable to Cliffs Shareholders of $15.9 million, respectively, on the Statements of Unaudited Condensed Consolidated Operations. The adjustments resulted in a decrease to basic and diluted earnings per common share of $0.12 and $0.11 per common share, respectively. In addition, Retained Earnings was decreased by $16.1 million and Accumulated other comprehensive income was increased by $25.3 million, respectively, on the Statements of Unaudited Condensed Consolidated Financial Position as of December 31, 2010 for the effect of these retrospective adjustments. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

Recent Accounting Pronouncements

In January 2010, the FASB amended the guidance on fair value to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendment also revises the guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The amended guidance is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the provisions of guidance required for the period beginning January 1, 2011; however, adoption of this amendment did not have a material impact on our consolidated financial statements.

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In December 2010, the FASB issued amended guidance on business combinations in order to clarify the disclosure requirements around pro forma revenue and earnings. The update was issued in response to the diversity in practice about the interpretation of such requirements. The amendment specifies that pro forma revenue and earnings of the combined entity be presented as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The new guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We adopted the amended guidance upon our acquisition of Consolidated Thompson. Refer to NOTE 5 –ACQUISITIONS AND OTHER INVESTMENTS for further information.

In May 2011, the FASB amended the guidance on fair value as a result of the joint efforts by the FASB and the IASB to develop a single, converged fair value framework. The converged fair value framework provides converged guidance on how to measure fair value and on what disclosures to provide about fair value measurements. The significant amendments to the fair value measurement guidance and the new disclosure requirements include: (1) the highest and best use and valuation premise for nonfinancial assets; (2) the application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risks; (3) premiums or discounts in fair value measurement; (4) fair value of an instrument classified in a reporting entity’s shareholders’ equity; (5) for Level 3 measurements, a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and a narrative description of the sensitivity of the fair value to changes in the unobservable inputs and interrelationships between those inputs; and (6) the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. The new guidance is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the impact that the adoption of this amendment will have on our consolidated financial statements.

In June 2011, the FASB issued amended guidance on the presentation of comprehensive income in order to improve comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in OCI. The update also facilitates the convergence of GAAP and IFRS. The amendment eliminates the presentation options under ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. In either presentation option, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statements where the components of net income and the components of OCI are presented. The amendment does not change the items that must be reported in other comprehensive income. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and the amendments are required to be applied retrospectively. We are currently evaluating which presentation option we will choose and the impact that the adoption of this amendment will have on our consolidated financial statements.

NOTE 2 – SEGMENT REPORTING

Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and our Global Exploration Group. The U.S. Iron Ore segment is comprised of our interests in five U.S. mines that provide iron ore to the integrated steel industry. The Eastern Canadian Iron Ore segment is comprised of two Eastern Canadian mines that provide iron ore primarily to the seaborne market to Asian steel producers. The North American Coal segment is comprised of our five metallurgical coal mines and one thermal coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry. The Asia Pacific Iron Ore segment is comprised of two iron ore mining complexes in Western Australia and provides iron ore to steel producers in China and Japan. There are no intersegment revenues.

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The Asia Pacific Coal operating segment is comprised of our 45 percent economic interest in Sonoma, located in Queensland, Australia. The Latin American Iron Ore operating segment is comprised of our 30 percent Amapá interest in Brazil. The Alternative Energies operating segment is comprised of our 95 percent interest in renewaFUEL located in Michigan. The Ferroalloys operating segment is comprised of our interests in chromite deposits held by Freewest and Spider in Northern Ontario, Canada, and the Global Exploration Group is focused on early involvement in exploration activities to identify new world-class projects for future development or projects that add significant value to existing operations. The Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and therefore are not separately reported.

We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company.

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The following table presents a summary of our reportable segments for the three and six months ended June 30, 2011 and 2010:

(1) Includes capital lease additions and non-cash accruals.

11

(In Millions)

Three Months Ended

June 30, Six Months Ended

June 30, 2011 2010 2011 2010 Revenues from product sales and services:

U.S. Iron Ore $ 885.2 49% $ 604.0 51% $ 1,395.3 47% $ 988.4 52% Eastern Canadian Iron Ore 297.6 16% 110.8 9% 424.9 14% 183.7 10% North American Coal 159.7 9% 116.2 10% 324.7 11% 197.3 10% Asia Pacific Iron Ore 381.6 21% 309.4 26% 727.0 24% 468.9 25% Other 81.7 5% 43.9 4% 117.1 4% 73.7 4%

Total revenues from product sales and services for reportable segments $ 1,805.8 100% $ 1,184.3 100% $ 2,989.0 100% $ 1,912.0 100%

Sales margin: U.S. Iron Ore $ 441.1 $ 179.8 $ 802.4 $ 281.3 Eastern Canadian Iron Ore 68.5 28.7 103.0 36.7 North American Coal (14.8) 23.0 (17.7) 12.4 Asia Pacific Iron Ore 205.0 169.1 400.8 212.8 Other 31.0 14.1 41.0 21.5

Sales margin 730.8 414.7 1,329.5 564.7 Other operating expense (113.9) (48.9) (171.4) (85.5) Other income (expense) (27.7) (14.1) (6.6) 19.7

Income from continuing operations before income taxes and equity income (loss) from ventures $ 589.2 $ 351.7 $ 1,151.5 $ 498.9

Depreciation, depletion and amortization: U.S. Iron Ore $ 22.2 $ 15.7 $ 39.5 $ 27.5 Eastern Canadian Iron Ore 30.1 14.4 39.9 25.6 North American Coal 20.8 11.3 42.4 23.0 Asia Pacific Iron Ore 24.9 40.3 48.9 66.2 Other 7.4 6.8 14.5 12.8

Total depreciation, depletion and amortization $ 105.4 $ 88.5 $ 185.2 $ 155.1

Capital additions (1): U.S. Iron Ore $ 55.7 $ 19.2 $ 87.3 $ 27.2 Eastern Canadian Iron Ore 60.7 3.2 64.2 4.6 North American Coal 28.5 9.8 56.0 13.9 Asia Pacific Iron Ore 58.0 12.5 83.3 20.2 Other 3.5 2.2 6.6 4.8

Total capital additions $ 206.4 $ 46.9 $ 297.4 $ 70.7

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A summary of assets by segment is as follows:

NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVIT IES

The following table presents the fair value of our derivative instruments and the classification of each on the Statements of Unaudited Condensed Consolidated Financial Position as of June 30, 2011 and December 31, 2010:

There were no derivative instruments classified as a liability as of June 30, 2011 or December 31, 2010.

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(In Millions)

June 30, 2011

December 31,

2010 Segment Assets:

U.S. Iron Ore $ 1,807.6 $ 1,537.1 Eastern Canadian Iron Ore 7,525.6 629.6 North American Coal 1,625.4 1,623.8 Asia Pacific Iron Ore 1,429.2 1,195.3 Other 1,021.3 1,257.8

Total segment assets 13,409.1 6,243.6 Corporate 262.6 1,534.6

Total assets $ 13,671.7 $ 7,778.2

(In Millions) Derivative Assets June 30, 2011 December 31, 2010

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments under ASC 815: Foreign Exchange Contracts

Derivative assets (current) $ 8.9

Derivative assets (current) $ 2.8

Total derivatives designated as hedging instruments under ASC 815 $ 8.9 $ 2.8

Derivatives not designated as hedging instruments under ASC 815: Foreign Exchange Contracts

Derivative assets (current) $ 21.5

Derivative assets (current) $ 34.2

Deposits and miscellaneous -

Deposits and miscellaneous 2.0

Customer Supply Agreements

Derivative assets (current) 64.0

Derivative assets (current) 45.6

Provisional Pricing Arrangements

Derivative assets (current) 15.8 -

Accounts Receivable 14.1 -

Total derivatives not designated as hedging instruments under ASC 815 $ 115.4 $ 81.8

Total derivatives $ 124.3 $ 84.6

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Derivatives Designated as Hedging Instruments

Cash Flow Hedges

Australian Dollar Foreign Exchange Contracts

We are subject to changes in foreign currency exchange rates as a result of our operations in Australia. Foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore and coal sales. We use foreign currency exchange forward contracts, call options and collar options to hedge our foreign currency exposure for a portion of our sales receipts. U.S. currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and to protect against undue adverse movement in these exchange rates. Effective October 1, 2010, we elected hedge accounting for certain types of our foreign exchange contracts entered into subsequent to September 30, 2010. These instruments are subject to formal documentation, intended to achieve qualifying hedge treatment, and are tested for effectiveness at inception and at each reporting period. Our hedging policy allows no more than 75 percent of anticipated operating costs for up to 12 months and no more than 50 percent of operating costs for up to 24 months to be designated as cash flow hedges of future sales. If and when these hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.

As of June 30, 2011, we had outstanding foreign currency exchange contracts with a notional amount of $135.0 million in the form of forward contracts with varying maturity dates ranging from July 2011 to May 2012. This compares with outstanding foreign currency exchange contracts with a notional amount of $70 million as of December 31, 2010.

Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive income on the Statements of Unaudited Condensed Consolidated Financial Position. Unrealized gains of $3.0 million and $4.9 million, respectively, were recorded for the three and six months ended June 30, 2011 related to these hedge contracts, based on the Australian to U.S. dollar spot rate of 1.07 as of June 30, 2011. Any ineffectiveness is recognized immediately in income and as of June 30, 2011, there was no ineffectiveness recorded for these foreign exchange contracts. Amounts recorded as a component of Accumulated other comprehensive income are reclassified into earnings in the same period the forecasted transaction affects earnings and are recorded as Product Revenues on the Statements of Unaudited Condensed Consolidated Operations. For the three and six months ended June 30, 2011, we recorded realized gains of $1.9 million and $2.2 million, respectively. Of the amounts remaining in Accumulated other comprehensive income , we estimate that $6.2 million will be reclassified into earnings within the next 12 months.

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The following summarizes the effect of our derivatives designated as hedging instruments on Accumulated other comprehensive income and the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011 and 2010:

Derivatives Not Designated as Hedging Instruments

Australian Dollar Foreign Exchange Contracts

Effective July 1, 2008, we discontinued hedge accounting for all outstanding foreign currency exchange contracts entered into at the time and continued to hold such instruments as economic hedges to manage currency risk as described above. The notional amount of the outstanding non-designated foreign exchange contracts was $105 million as of June 30, 2011. The contracts are in the form of collar options and forward contracts with varying maturity dates ranging from July 2011 to January 2012. This compares with outstanding non-designated foreign exchange contracts with a notional amount of $230 million as of December 31, 2010.

As a result of discontinuing hedge accounting, the instruments are prospectively marked to fair value each reporting period through Changes in fair value of foreign currency contracts, net on the Statements of Unaudited Condensed Consolidated Operations. For the three and six months ended June 30, 2011, the change in fair value of our foreign currency contracts resulted in net gains of $7.0 million and $11.4 million, respectively, based on the Australian to U.S. dollar spot rate of 1.07 at June 30, 2011. This compares with net losses of $10.0 million and $7.7 million for the three and six months ended June 30, 2010, respectively, based on the Australian to U.S. dollar spot rate of 0.85 at June 30, 2010. The amounts that were previously recorded as a component of Accumulated other comprehensive income are reclassified to earnings and a corresponding realized gain or loss is recognized in the same period the forecasted transaction affects earnings.

14

(In Millions)

Derivatives in Cash Flow Hedging Relationships

Amount of Gain/(Loss) Recognized in OCI on

Derivative (Effective Portion)

Location of Gain/(Loss) Reclassified from

Accumulated OCI into Income

(Effective Portion)

Amount of Gain/(Loss) Reclassified from

Accumulated OCI into Income

(Effective Portion)

Three months ended

June 30, Three months ended

June 30, 2011 2010 2011 2010 Australian Dollar Foreign Exchange Contracts

(hedge designation) $ 3.0 $ - Product Revenue $ 0.8 $ - Australian Dollar Foreign Exchange Contracts (prior

to de-designation) - - Product Revenue 0.5 1.6

Total $ 3.0 $ - $ 1.3 $ 1.6

Six months ended

June 30, Six months ended

June 30, 2011 2010 2011 2010 Australian Dollar Foreign Exchange Contracts

(hedge designation) $ 4.9 $ - Product Revenue $ 1.0 $ - Australian Dollar Foreign Exchange Contracts (prior

to de-designation) - - Product Revenue 0.7 3.2

Total $ 4.9 $ - $ 1.7 $ 3.2

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Canadian Dollar Foreign Exchange Contracts and Options

On January 11, 2011, we entered into a definitive arrangement agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction, including net debt. We hedged a portion of the purchase price on the open market by entering into foreign currency exchange forward contracts and an option contract with a combined notional amount of C$4.7 billion. The hedge contracts were considered economic hedges which do not qualify for hedge accounting. The forward contracts had maturity dates of March 30, 2011 and the option contract had a maturity date of April 14, 2011.

During the first half of 2011, swaps were executed in order to extend the maturity dates of certain of the forward contracts through the consummation of the Consolidated Thompson acquisition and the repayment of the Consolidated Thompson convertible debentures. These swaps and the maturity of the forward contracts resulted in net realized gains of $41.5 million and $93.1 million, respectively, recognized through Changes in fair value of foreign currency contracts, net on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011.

Customer Supply Agreements

Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during any given year. The price adjustment factors vary based on the agreement but typically include adjustments based upon changes in international pellet prices, changes in specified Producers Price Indices including those for all commodities, industrial commodities, energy and steel. The adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.

Certain supply agreements with one U.S. Iron Ore customer provide for supplemental revenue or refunds based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as a freestanding derivative and is required to be accounted for separately once the product is shipped. The derivative instrument, which is finalized based on a future price, is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $46.5 million and $71.1 million, respectively, as Product revenues on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011, related to the supplemental payments. This compares with Product revenues of $48.4 million and $68.3 million, respectively, for the comparable periods in 2010. Derivative assets, representing the fair value of the pricing factors, were $64.0 million and $45.6 million, respectively, on the June 30, 2011 and December 31, 2010 Statements of Unaudited Condensed Consolidated Financial Position.

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Provisional Pricing Arrangements

During 2010, the world’s largest iron ore producers began to move away from the annual international benchmark pricing mechanism referenced in certain of our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. This change has impacted certain of our U.S. Iron Ore and Eastern Canadian Iron Ore customer supply agreements for the 2011 contract year, and in some cases we have revised the terms of such agreements to incorporate changes to historical pricing mechanisms. As a result, we have recorded certain shipments made to our U.S. Iron Ore and Eastern Canadian Iron Ore customers in the first half of 2011 on a provisional basis until final settlement is reached. The pricing provisions are characterized as freestanding derivatives and are required to be accounted for separately once the product is shipped. The derivative instrument, which is settled and billed once final pricing settlement is reached, is marked to fair value as a revenue adjustment each reporting period based upon the estimated forward settlement until prices are actually settled. We recognized $289.4 million and $309.4 million, respectively, as an increase in Product revenues on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011 under these pricing provisions for certain shipments to our U.S. Iron Ore and Eastern Canadian Iron Ore customers. This compares with an increase in Product revenues of $389.3 million and $731.5 million for the three and six months ended June 30, 2010 related to estimated forward price settlement for shipments to our Asia Pacific Iron Ore, U.S. Iron Ore and Eastern Canadian Iron Ore customers until prices actually settled.

As of June 30, 2011, we have recorded approximately $15.8 million as current Derivative assets on the Statements of Unaudited Condensed Consolidated Financial Position related to our estimate of final pricing in 2011 with our U.S. Iron Ore and Eastern Canadian Iron Ore customers. This amount represents the incremental difference between the provisional price agreed upon with our customers and our estimate of the ultimate price settlement in 2011. As of June 30, 2011, we also have derivatives of $14.1 million classified as Accounts receivable on the Statements of Unaudited Condensed Consolidated Financial Position to reflect the amount we have provisionally agreed upon with certain of our Eastern Canadian Iron Ore customers until a final price settlement is reached. It also represents the amount we have invoiced for shipments made to such customers and expect to collect in cash in the short-term to fund operations. In 2010, the derivative instrument was settled in the fourth quarter upon the settlement of pricing provisions with some of our U.S. Iron Ore customers and therefore is not reflected in the Statements of Unaudited Condensed Consolidated Financial Position at December 31, 2010.

The following summarizes the effect of our derivatives that are not designated as hedging instruments, on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011 and 2010:

Refer to NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information.

NOTE 4 – INVENTORIES

The following table presents the detail of our Inventories on the Statements of Unaudited Condensed Consolidated Financial Position as of June 30, 2011 and December 31, 2010:

16

(In Millions)

Derivative Not Designated as Hedging Instruments

Location of Gain/(Loss) Recognized in Income on

Derivative Amount of Gain/(Loss) Recognized in Income on Derivative

Three Months Ended

June 30, Six Months Ended

June 30, 2011 2010 2011 2010 Foreign Exchange Contracts Product Revenues $ 2.6 $ 2.2 $ 3.2 $ 5.0 Foreign Exchange Contracts Other Income (Expense) 48.5 (10.0) 104.5 (7.7) Customer Supply Agreements Product Revenues 46.5 48.4 71.1 68.3 Provisional Pricing Arrangements Product Revenues 289.4 389.3 309.4 731.5

Total $ 387.0 $ 429.9 $ 488.2 $ 797.1

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NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS

We allocate the cost of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. Any excess of cost over the fair value of the net assets acquired is recorded as goodwill.

Wabush

We acquired entities from our former partners that held their respective interests in Wabush on February 1, 2010, thereby increasing our ownership interest to 100 percent. Our full ownership of Wabush has been included in the consolidated financial statements since that date. The acquisition date fair value of the consideration transferred totaled $103 million, which consisted of a cash purchase price of $88 million and a working capital adjustment of $15 million. With Wabush’s 5.5 million tons of production capacity, acquisition of the remaining interest has increased our Eastern Canadian Iron Ore equity production capacity by approximately 4.0 million tons and has added more than 50 million tons of additional reserves. Furthermore, acquisition of the remaining interest has provided us additional access to the seaborne iron ore markets serving steelmakers in Europe and Asia.

Prior to the acquisition date, we accounted for our 26.8 percent interest in Wabush as an equity-method investment. We initially recognized an acquisition date fair value of the previous equity interest of $39.7 million, and a gain of $47.0 million as a result of remeasuring our prior equity interest in Wabush held before the business combination. The gain was recognized in the first quarter of 2010 and was included in Gain on acquisition of controlling interests in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2010.

In the months subsequent to the initial purchase price allocation, we further refined the fair values of the assets acquired and liabilities assumed. Additionally, we also continued to ensure our existing interest in Wabush was incorporating all of the book basis, including amounts recorded in Accumulated other comprehensive income . Based on this process the acquisition date fair value of the previous equity interest was adjusted to $38.0 million. The changes required to finalize the U.S. and Canadian deferred tax valuations and to incorporate additional information on assumed asset retirement obligations offset to a net decrease of $1.7 million in the fair value of the equity interest from the initial purchase price allocation. Thus, the gain resulting from the remeasurement of our prior equity interest, net of amounts previously recorded in Accumulated other comprehensive income of $20.3 million, was adjusted to $25.0 million as of December 31, 2010.

17

(In Millions) June 30, 2011 December 31, 2010

Segment Finished

Goods Work-in

Process Total

Inventory Finished

Goods Work-in

Process Total

Inventory U.S. Iron Ore $ 317.1 $ 18.8 $ 335.9 $ 101.1 $ 9.7 $ 110.8 Eastern Canadian Iron

Ore 147.5 35.3 182.8 43.5 21.2 64.7 North American Coal 5.0 23.0 28.0 16.1 19.8 35.9 Asia Pacific Iron Ore 37.7 14.5 52.2 34.7 20.4 55.1 Other 4.9 1.5 6.4 2.6 0.1 2.7

Total $ 512.2 $ 93.1 $ 605.3 $ 198.0 $ 71.2 $ 269.2

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Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill and Gain on acquisition of controlling interests, made during the second half of 2010, back to the date of acquisition. Accordingly, such amounts are reflected in the Statements of Unaudited Condensed Consolidated Operations for the six months ended June 30, 2010 and have been excluded from the three months ended June 30, 2010. We finalized the purchase price allocation for the acquisition of Wabush during the fourth quarter of 2010.

Freewest

During 2009, we acquired 29 million shares, or 12.4 percent, of Freewest, a Canadian-based mineral exploration company focused on acquiring, exploring and developing high-quality chromite, gold and base-metal properties in Canada. On January 27, 2010, we acquired all of the remaining outstanding shares of Freewest for C$1.00 per share, including its interest in the Ring of Fire properties in Northern Ontario, Canada, which comprise three premier chromite deposits. As a result of the transaction, our ownership interest in Freewest increased from 12.4 percent as of December 31, 2009 to 100 percent as of the acquisition date. Our full ownership of Freewest has been included in the consolidated financial statements since the acquisition date. The acquisition of Freewest is consistent with our strategy to broaden our geographic and mineral diversification and allows us to apply our expertise in open-pit mining and mineral processing to a chromite ore resource base that could form the foundation of North America’s only ferrochrome production operation. Assuming favorable results from pre-feasibility and feasibility studies and receipt of all applicable approvals, the planned mine is expected to allow us to produce 600 thousand metric tons of ferrochrome and to produce one million metric tons of chromite concentrate annually. Total purchase consideration for the acquisition was approximately $185.9 million, comprised of the issuance of 0.0201 of our common shares for each Freewest share, representing a total of 4.2 million common shares or $173.1 million, and $12.8 million in cash. The acquisition date fair value of the consideration transferred was determined based upon the closing market price of our common shares on the acquisition date.

Prior to the acquisition date, we accounted for our 12.4 percent interest in Freewest as an available-for-sale equity security. The acquisition date fair value of the previous equity interest was $27.4 million, which was determined based upon the closing market price of the 29 million previously owned shares on the acquisition date. We recognized a gain of $13.6 million in the first quarter of 2010 as a result of remeasuring our ownership interest in Freewest held prior to the business acquisition. The gain is included in Gain on acquisition of controlling interests in the Statements of Consolidated Operations for the six months ended June 30, 2010.

We finalized the purchase price allocation in the fourth quarter of 2010. Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill, made during the fourth quarter of 2010, back to the date of acquisition.

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CLCC

On July 30, 2010, we acquired the coal operations of privately-owned INR, and since that date, the operations acquired from INR have been conducted through our wholly-owned subsidiary known as CLCC. Our full ownership of CLCC has been included in the consolidated financial statements since the acquisition date, and the subsidiary is reported as a component of our North American Coal segment. The acquisition date fair value of the consideration transferred totaled $775.9 million, which consisted of a cash purchase price of $757 million and a working capital adjustment of $18.9 million.

CLCC is a producer of high-volatile metallurgical and thermal coal located in southern West Virginia. CLCC’s operations include two underground continuous mining method metallurgical coal mines and one open surface thermal coal mine. The acquisition includes a metallurgical and thermal coal mining complex with a coal preparation and processing facility as well as a large, long-life reserve base with an estimated 59 million tons of metallurgical coal and 62 million tons of thermal coal. This reserve base increases our total global reserve base to over 166 million tons of metallurgical coal and over 67 million tons of thermal coal. This acquisition represents an opportunity for us to add complementary high-quality coal products and provides certain advantages, including among other things, long-life mine assets, operational flexibility, and new equipment.

The following table summarizes the consideration paid for CLCC and the fair values of the assets acquired and liabilities assumed at the acquisition date. We finalized the purchase price allocation in the second quarter of 2011. Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill back to the date of acquisition. We adjusted the initial purchase price allocation for the acquisition of CLCC as follows:

As our fair value estimates remain materially unchanged from 2010, there were no significant changes to the purchase price allocation from the initial allocation reported during the third quarter of 2010.

19

(In Millions)

Initial

Allocation Final

Allocation Change Consideration

Cash $ 757.0 $ 757.0 $ - Working capital adjustments 17.5 18.9 (1.4)

Fair value of total consideration transferred $ 774.5 $ 775.9 $ (1.4)

Recognized amounts of identifiable assets acquired and liabilities assumed ASSETS: Product inventories $ 20.0 $ 20.0 $ - Other current assets 11.8 11.8 - Land and mineral rights 640.3 639.3 1.0 Plant and equipment 111.1 112.3 (1.2) Deferred taxes 16.5 15.9 0.6 Intangible assets 7.5 7.5 - Other non-current assets 0.8 0.8 -

Total identifiable assets acquired 808.0 807.6 0.4 LIABILITIES: Current liabilities (22.8) (24.1) 1.3 Mine closure obligations (2.8) (2.8) - Below-market sales contracts (32.6) (32.6) -

Total identifiable liabilities assumed (58.2) (59.5) 1.3

Total identifiable net assets acquired 749.8 748.1 1.7 Goodwill 24.7 27.8 (3.1)

Total net assets acquired $ 774.5 $ 775.9 $ (1.4)

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Of the $7.5 million of acquired intangible assets, $5.4 million was assigned to the value of in-place permits and will be amortized on a straight-line basis over the life of the mine. The remaining $2.1 million was assigned to the value of favorable mineral leases and will be amortized on a straight-line basis over the corresponding mine life.

The $27.8 million of goodwill resulting from the acquisition was assigned to our North American Coal business segment. The goodwill recognized is primarily attributable to the addition of complementary high-quality coal products to our existing operations and operational flexibility. None of the goodwill is expected to be deductible for income tax purposes . Refer to NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

With regard to the acquisitions discussed above, pro forma results of operations have not been presented because the effects of the business combinations, individually and in the aggregate, were not material to our consolidated results of operations.

Consolidated Thompson

On May 12, 2011, we completed our previously announced acquisition of Consolidated Thompson by acquiring all of the outstanding common shares of Consolidated Thompson for C$17.25 per share in an all-cash transaction, including net debt, pursuant to the terms of the definitive arrangement agreement dated as of January 11, 2011. Upon the acquisition: (a) each outstanding Consolidated Thompson common share was acquired for a cash payment of C$17.25; (b) each outstanding option and warrant that was “in the money”was acquired for cancellation for a cash payment of C$17.25 less the exercise price per underlying Consolidated Thompson common share; (c) each outstanding performance share unit was acquired for cancellation for a cash payment of C$17.25; (d) all outstanding Quinto Mining Corporation rights to acquire common shares of Consolidated Thompson were acquired for cancellation for a cash payment of C$17.25 per underlying Consolidated Thompson common share; and (e) certain Consolidated Thompson management contracts were eliminated that contained certain change of control provisions for contingent payments upon termination. The acquisition date fair value of the consideration transferred totaled $4.6 billion. Our full ownership of Consolidated Thompson has been included in the consolidated financial statements since the acquisition date, and the subsidiary is reported as a component of our Eastern Canadian Iron Ore segment.

The acquisition of Consolidated Thompson reflects our strategy to build scale by owning expandable and exportable steelmaking raw material assets serving international markets. Consolidated Thompson is a Canadian mining company producing iron ore concentrate of high-quality. Consolidated Thompson operates an iron ore mine and processing facility near Bloom Lake in Quebec, Canada. WISCO is a twenty-five percent equity holder in Bloom Lake. Bloom Lake is currently ramping up towards an initial production rate of 8.0 million metric tons of iron ore concentrate per year. During the second quarter of 2011, additional capital investments were approved in order to increase the initial production rate to 16.0 million metric tons of iron ore concentrate per year. Consolidated Thompson also owns two additional development properties, Lamêlée and Peppler Lake, in Quebec. All three of these properties are in proximity to our existing Canadian operations and will allow us to leverage our port facilities and supply this iron ore to the seaborne market. The acquisition is also expected to further diversify our existing customer base.

The following table summarizes the consideration paid for Consolidated Thompson and the estimated fair values of the assets and liabilities assumed at the acquisition date. We are in the process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition, most notably, tangible assets, deferred taxes and goodwill, and the final allocation will be made when completed. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.

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The fair value of the noncontrolling interest in the assets acquired and liabilities assumed of Bloom Lake has been proportionately allocated, based upon WISCO’s twenty-five percent interest in Bloom Lake. We then reduced the allocated fair value of WISCO’s ownership interest in Bloom Lake to reflect a noncontrolling interest discount.

The $1,026.8 million of preliminary goodwill resulting from the acquisition has been assigned to our Eastern Canadian Iron Ore business segment. The preliminary goodwill recognized is primarily attributable to the proximity to our existing Canadian operations which will allow us to leverage our port facilities and supply iron ore to the seaborne market. None of the preliminary goodwill is expected to be deductible for income tax purposes. Refer to NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

Acquisition related costs in the amount of $18.0 million and $22.9 million, respectively, have been charged directly to operations and are included within Consolidated Thompson acquisition costs on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011. In addition, we recognized $16.7 million of deferred debt issuance costs, net of accumulated amortization of $0.7 million, associated with issuing and registering the debt required to fund the acquisition as of June 30, 2011. Of these costs, $1.7 million and $15.0 million, respectively, have been recorded in Other current assets and Other non-current assets on the June 30, 2011 Statements of Unaudited Condensed Consolidated Financial Position. Upon the termination of the bridge credit facility that we entered into to provide a portion of the financing for the acquisition of Consolidated Thompson, $30.4 million and $38.3 million, respectively, of related debt issuance costs were recognized in Interest expense on the Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011.

21

(In Millions)

Initial

Allocation Consideration

Cash $ 4,554.0

Fair value of total consideration transferred $ 4,554.0

Recognized amounts of identifiable assets acquired and liabilities assumed ASSETS: Cash $ 130.6 Accounts receivable 102.8 Product inventories 134.2 Other current assets 35.1 Mineral rights 4,450.0 Property, plant and equipment 1,193.4 Intangible assets 2.1

Total identifiable assets acquired 6,048.2 LIABILITIES: Accounts payable (13.6) Accrued liabilities (130.0) Convertible debentures (335.7) Other current liabilities (41.8) Long-term deferred tax liabilities (831.5) Wabush Easement (11.1) Senior secured notes (125.0) Capital lease obligations (70.7) Other long-term liabilities (14.0)

Total identifiable liabilities assumed (1,573.4)

Total identifiable net assets acquired 4,474.8 Noncontrolling interest in Bloom Lake (947.6) Preliminary goodwill 1,026.8

Total net assets acquired $ 4,554.0

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The Statements of Unaudited Condensed Consolidated Operations for the three and six months ended June 30, 2011 include incremental revenue and operating loss of $145.8 million and $7.2 million, respectively, related to the acquisition of Consolidated Thompson since the date of acquisition. The operating losses during the period include the impact of expensing an additional $48.4 million of stepped-up value of inventory due to purchase accounting through Cost of goods sold and operating expenses .

The following unaudited consolidated pro forma information summarizes the results of operations for the three and six months ended June 30, 2011 and 2010, as if the Consolidated Thompson acquisition and the related financing had been completed as of January 1, 2010. The pro forma information gives effect to actual operating results prior to the acquisition. The unaudited consolidated pro forma information does not purport to be indicative of the results that would have actually been obtained if the acquisition of Consolidated Thompson had occurred as of the beginning of the periods presented or that may be obtained in the future.

The pro forma net income attributable to Cliffs shareholders was adjusted to exclude $60.3 million and $67.2 million, respectively, of Cliffs and Consolidated Thompson acquisition related costs and $48.4 million of non-recurring inventory purchase accounting adjustments incurred during the three and six months ended June 30, 2011.

NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS AND L IABILITIES

Goodwill

The following table summarizes changes in the carrying amount of goodwill allocated by reporting unit for the six months ended June 30, 2011 and the year ended December 31, 2010:

Represents a 12-month rollforward of our goodwill by reportable unit at December 31, 2010.

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(In Millions, Except Per Common Share)

Three Months Ended June 30,

Six Months Ended June 30,

2011 2010 2011 2010 Revenues from product sales

and services $ 2,065.0 $ 1,219.9 $ 3,343.8 $ 1,947.4 Net income attributable to

Cliffs shareholders $ 417.0 $ 206.8 $ 808.7 $ 192.6 Earnings per common share

attributable to Cliffs shareholders - Basic $ 3.00 $ 1.53 $ 5.89 $ 1.42

Earnings per common share attributable to Cliffs shareholders - Diluted $ 2.98 $ 1.52 $ 5.86 $ 1.42

(In Millions) June 30, 2011 December 31, 2010

U.S. Iron Ore

Eastern Canadian

Iron Ore

North American

Coal

Asia Pacific

Iron Ore Other Total

U.S. Iron Ore

Eastern Canadian

Iron Ore

North American

Coal

Asia Pacific

Iron Ore Other Total

Beginning Balance $ 2.0 $ 3.1 $ 27.9 $ 82.6 $ 80.9 $ 196.5 $ 2.0 $ - $ - $ 72.6 $ - $ 74.6 Arising in

business combinations - 1,026.8 - - - 1,026.8 - 3.1 27.9 - 80.9 111.9

Impact of foreign currency translation - - - 4.5 - 4.5 - - - 10.0 - 10.0

Other - (0.4) (0.1) - - (0.5) - - - - - -

Ending Balance $ 2.0 $ 1,029.5 $ 27.8 $ 87.1 $ 80.9 $ 1,227.3 $ 2.0 $ 3.1 $ 27.9 $ 82.6 $ 80.9 $ 196.5

(1)

(1)

Table of Contents

The increase in the balance of Goodwill as of June 30, 2011 is due to the preliminary assignment of $1,026.8 million to Goodwill in the second quarter of 2011 based on the preliminary purchase price allocation for the acquisition of Consolidated Thompson. The balance of $1,227.3 million and $196.5 million at June 30, 2011 and December 31, 2010, respectively, is presented as Goodwill on the Statements of Unaudited Condensed Consolidated Financial Position. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for additional information.

Goodwill is not subject to amortization and is tested for impairment annually or when events or circumstances indicate that impairment may have occurred.

Other Intangible Assets and Liabilities

Following is a summary of intangible assets and liabilities as of June 30, 2011 and December 31, 2010:

The intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:

Amortization expense relating to intangible assets was $4.7 million and $9.6 million, respectively, for the three and six months ended June 30, 2011, and is recognized in Cost of goods sold and operating expenses on the Statements of Unaudited Condensed Consolidated Operations. Amortization expense relating to intangible assets was $4.3 million and $8.3 million, respectively, for the comparable periods in 2010. The estimated amortization expense relating to intangible assets for the remainder of 2011 and each of the five succeeding fiscal years is as follows:

(In Millions) June 30, 2011 December 31, 2010

Classification

Gross Carrying Amount

Accumulated

Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated

Amortization

Net Carrying Amount

Definite lived intangible assets: Permits Intangible assets, net $ 137.1 $ (20.3) $ 116.8 $ 132.4 $ (16.3) $ 116.1 Utility contracts Intangible assets, net 54.7 (15.8) 38.9 54.7 (10.2) 44.5 Easements (1) Intangible assets, net - - - 11.7 (0.4) 11.3 Leases Intangible assets, net 5.5 (2.9) 2.6 5.2 (2.9) 2.3 Unpatented technology Intangible assets, net 4.0 (2.8) 1.2 4.0 (2.4) 1.6

Total intangible assets $ 201.3 $ (41.8) $ 159.5 $ 208.0 $ (32.2) $ 175.8

Below-market sales contracts Other current liabilities $ (77.0) $ 24.3 $ (52.7) $ (77.0) $ 19.9 $ (57.1) Below-market sales contracts Below-Market Sales Contracts (252.3) 107.2 (145.1) (252.3) 87.9 (164.4)

Total below-market sales contracts $ (329.3) $ 131.5 $ (197.8) $ (329.3) $ 107.8 $ (221.5)

(1) Upon the acquisition of Consolidated Thompson, this intangible asset is now eliminated through intercompany eliminations. The easement agreement is between Wabush and Consolidated Thompson.

Intangible Asset Useful Life (years) Permits 15 - 28 Utility contracts 5 Easements 30 Leases 1.5 - 4.5 Unpatented technology 5

(In Millions) Amount Year Ending December 31

2011 (remaining six months) $ 9.6 2012 19.2 2013 18.3 2014 18.3 2015 6.4 2016 6.4

Total $ 78.2

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Table of Contents

The below-market sales contracts are classified as a liability and recognized over the remaining terms of the underlying contracts, which range from 3.5 to 8.5 years. For the three and six months ended June 30, 2011, we recognized $16.6 million and $23.7 million, respectively, in Product revenues related to the below-market sales contracts, compared with $11.8 million for the three and six months ended June 30, 2010. The following amounts will be recognized in earnings for the remainder of 2011 and each of the five succeeding fiscal years:

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following represents the assets and liabilities of the Company measured at fair value at June 30, 2011 and December 31, 2010:

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(In Millions) Amount Year Ending December 31

2011 (remaining six months) $ 34.6 2012 48.8 2013 45.3 2014 23.0 2015 23.0 2016 23.1

Total $ 197.8

(In Millions) June 30, 2011

Description

Quoted Prices in Active

Markets for Identical Assets/Liabilities

(Level 1)

Significant Other Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3) Total

Assets: Cash equivalents $ 130.0 $ - $ - $ 130.0 Derivative assets - 29.9 (1) 64.0 93.9 U.S. marketable securities 15.1 - - 15.1 International marketable securities 41.8 - - 41.8 Forei